Moncler
MONC
End-of-day quote Italian Stock Exchange - 11/16
22.94EUR
+0.48%

An almost unbelievable success story

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04/21/2017 | 10:57 am

This year the French luxury apparel maker Moncler reached the € 1 billion mark in sales. In itself, this is not particularly spectacular for a very fast-growing and successful high-end luxury apparel brand. However, one has to consider where the company has come from. It was acquired in 2003 by the Italian business man Remo Ruffini while struggling and generating revenue of no more than € 43 million. Since then, Mr. Ruffini, who continues to be the company’s main shareholder even after its IPO in 2013, has grown Moncler into a luxury apparel powerhouse with over € 1 billion in sales and a stock market valuation of € 5.5bn.

Background Information

Moncler goes back to 1952 when the brand and company was created in the French region Isère by René Ramillon. The name stems from the abbreviation of the town from which the company originally hails: Monestier-de-Clermont. Initially, Moncler produced quilted sleeping bags and tents with and outside cover. The first down jackets were conceived for protecting workers from the cold. The jacket’s potential was realized by the French mountaineer Lionel Terray for whom subsequently a specialist range called "Moncler pour Lionel Terray" was developed, including down jackets, overalls, gloves and high-resistance sleeping bags. The equipment was put to the test in the course of Terray’s expeditions and gradually improved.
When Moncler was chosen as one of the suppliers to the French skiing team in the Grenoble winter Olympics in 1968, the brand became known to a larger audience and was rapidly adopted by the urban affluent. The company was highly successful during the 1970s and 1980s, but lost momentum in 1990s and became marginal at the turn of the millennium.
It was acquired in 2003 by Italian business man Remo Ruffini who had a childhood affiliation with the brand and the product when he managed to convince his parents to buy him what was already then a very expensive jacket. Mr. Ruffini, who nowadays owns 26.7% of the company and still acts as its Chairman and CEO, had prior experience in fashion. Not only had his parent worked in the industry, but he had also created and subsequently sold a brand called New England.
In Mr. Ruffini’s mind the strategy for Moncler was clear from the start. Create a life-style brand and sell it to the urban affluent across the globe. From not more than a unique history and heritage, Mr. Ruffini created a major player in the luxury apparel segment. The brand’s products, nowadays comprising all pieces of apparel imaginable plus accessories, have found a large and rapidly growing following among the urban affluent all over the world.



Source: Moncler Website

In 2016, the company’s sales grew by 18% with sales in Asia and the Americas up by roughly 25% yoy. In total, Moncler now has close to 200 stores around the world with flagship stores in most key cities, such as Paris, London, New York (opened in 2016).


Source: Moncler Investor Presentation

Moncler’s financial success is at least as astounding as the company’s foray into luxury fashion. Under Mr. Ruffini’s leadership sales have grown by a factor of 25x over the course of his13 year ownership, from € 43m in 2003 to € 1.04bn in 2016. The net margin was almost 20% in 2016 with € 196m of net profit translating into a return on equity of 28%.

Investment Case

➢ Strong alignment of interest between CEO and shareholders thanks to a 27% ownership stake
➢ Visionary owner with a clear strategy and excellent execution
➢ Strong brand momentum, likely even on an accelerating path as several flagship stores opened in 2016 (New York, Toronto, Hong Kong, Singapore)
➢ Extremely profitable, as evidenced by return on equity (ROE) of 28%

Risks and Weaknesses

Moncler is faring extremely well, which stands in stark contrast to much of the textile industry, which has been struggling in the face of online competition, cf. Hugo Boss, Gerry Weber etc. Having said that, Moncler has several major advantages over the rest of the textile industry. First of all, it is positioned at the high-end of the luxury apparel market, which is where many clients seek the exclusive in-store experience. Many readers may have seen queues in front of the “It” stores when strolling around capital cities. Secondly, Moncler’s development has coincided with the gain in power of the online channel, i.e. it does not have the legacy burden of having too many physical stores in unfavorable locations. Instead it has focused on flagship stores and built the online sales channel at the same time. Lastly, only 12 years after the re-launch or even re-creation of the brand, Moncler’s growth is still accelerating as its brand is still under development in many major markets.
In conclusion, the circumstances are very much in favor of the company. Now, it is all about execution, where Mr. Ruffini and the company’s key executives have shown very strong results. There is little reason to believe that they will lose their edge all of a sudden.

Valuation

Though Moncler’s stock is not cheap and probably fairly valued, it is unlikely that the company’s development has reached the end of the line with growth rates in the mid to high 20% range in Asia and the Americas. Investors with a long-term view are likely to do well even at the current valuation when investing in Moncler alongside Mr. Ruffini. In addition, when looking at the industry, the likelihood is relatively high that one of the large luxury goods conglomerates, such as LVMH or Christian Dior will ultimately pull the trigger by making an attractive offer to Mr. Ruffini and his co-shareholders.

Ulrich Ebensperger
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